FCA to assume AML supervision of lawyers – what we know (and don’t know) so far
Anne Austin
Director
The ‘big announcement’ during the SRA COLP and COFA Conference in Birmingham last month – that the Financial Conduct Authority (FCA) would assume sole responsibility for AML/CTF supervision of all regulated lawyers – sent shock waves across the profession.
The reform is part of a broader government agenda to simplify, strengthen, and improve consistency in AML. The government has decided that the FCA should assume responsibility for AML/CTF supervision of legal, accountancy, and trust and company service providers. The change will mark the end of the current system, in which 22 professional-body supervisors (PBSs) including the Solicitors Regulation Authority (SRA) and the Institute of Chartered Accountants in England and Wales (ICAEW) supervise and enforce compliance by professional services practices.
The SRA and ICAEW have expressed severe disappointment at the Government’s decision. The SRA has questioned how the changes will work in practice (will, for example, the FCA take on the SRA’s existing AML team to assist its understanding of legal services?) and the ICAEW has raised concerns around additional regulatory burdens and costs. The Law Society has described the proposed regime as “highly complex” and highlighted the significant challenges the change brings, including cost implications, the risk of increased regulatory burden, and the potential loss of sector-specific expertise.
What we know so far
The transition plan is intended to be published in 2026 but, to quote Donald Rumsfeld, there are many known unknowns!
If you’re compliant now, you’re in a strong position.
The essential elements of strong AML supervision will remain the same. We all work from the same Money Laundering Regulations and need to maintain a firm wide risk assessment, clear and detailed policies, controls and procedures, carry out and record thorough due diligence, with individual client and matter risk assessments, ongoing monitoring, with effective oversight, challenge and training. In any sector – law, accountancy or finance – getting these core elements right puts you well on the path to strong AML compliance.
A change of approach
The biggest changes are likely to be in approach. From our own experience of dealing with the FCA, we consider the following to be likely:
- Firms will be expected to have considered and documented the risks associated with the business they undertake in a risk management and control framework. The SRA’s approach is to supervise AML on a stand-alone basis, but the FCA prefers a more integrated approach as part of an overall risk management framework
- Compliance testing and monitoring will be required to ensure a firm’s systems and controls are effective. The FCA expects to see a documented compliance monitoring plan with use of compliance monitoring results to inform the AML compliance framework and governance reporting going forward, leading to a process of continuous improvement
- Data, data, data….under FCA regulation, expect increased information gathering and reporting obligations and to ensure that you can produce accurate data quickly. How do you know it’s accurate? Back to your compliance testing….
- You will need to keep a breach register and to track remediation and validation to ensure that remediation is effective, with immediate notification to the regulator
- Likely more intrusive inspection powers and tougher enforcement action, including possible criminal prosecutions for AML breaches including concealing or destroying evidence
If you’re the COLP or MLRO of a small firm and this sounds overwhelming, don’t panic. The FCA takes a proportionate approach based on size and complexity of the firm, and the products and services it offers. Whilst it expects close compliance from larger and better-resourced organisations it doesn’t expect the same rigour from a small firm.
Have your say – Government consultation
Last week, on 6th November, HM Treasury launched a consultation, seeking views on whether the proposed (increased) powers, duties and accountability mechanisms for the FCA are sufficient and appropriate to achieve the primary aim of AML/CTF supervision reform. You can access the consultation here – it closes on 24 December 2025.
Some thoughts on the consultation document
- “Policing the perimeter”. HM Treasury is proposing that the FCA should maintain a public register of every professional services firm it supervises for AML/CTF purposes. Firms will be required to register with the FCA to carry out AML/CTF regulated activities. Some law firms are already on the FCA Register to enable them to issue, eg, ATE policies. Those already supervised by PBSs (such as the SRA or ICAEW) should not need to complete a re-registration process, although they (or individuals within them) may be required to confirm certain details. It is also proposed that the FCA undertakes fit and proper checks in respect of professional services firms, recognising that these may not have been conducted previously to the same depth as those typically applied by the FCA. And the proposal to grant the FCA powers to cancel a AML/CTF registration when the business no longer carries out regulated activities will apply equally to all professional services firms.
- Double charging? The FCA’s costs will be funded by the firms it supervises. It’s unclear whether the annual fees charged by the SRA, ICAEW and other PBSs (which include the cost of AML supervision) will be reduced accordingly.
- What about sanctions and anti-fraud compliance? AML/CTF and sanctions compliance are often considered together, not least because the same eID&v checks are used for both. However, it seems likely (although not confirmed) that supervision of sanctions compliance and counter-fraud procedures is likely to remain with the sector-specific regulator. Clearly, this dual regulatory oversight, particularly within the area of financial crime, will add a layer of complexity, risking a disjointed approach or possibly over-regulation.
Preparing your firm
While the transition timeline is dependent on parliamentary approval and detailed implementation plans, we advise to start preparing now.
Actions law firms should be taking now
- Audit current AML/CTF compliance– Review your policies, risk assessments, client-onboarding/KYC procedures, monitoring, and escalation frameworks. Consider, critically, how AML weaknesses are identified and dealt with. Now would be the perfect time for an independent AML audit to identify and remediate any weaknesses before the transition.
- Gap-analysis vs FCA expectations – Consider moving towards risk-based, documented frameworks aligned with FCA supervisory style. Familiarise yourself with FCA regulation and consider how to apply it in your firm
- Train your team – Make sure everyone in the firm understands your AML procedures and how to implement them. Train your team on how to complete the client and matter risk assessment, when to apply enhanced due diligence, and how to investigate and record source of funds and wealth.
Final thoughts
Don’t wait: now is the time to review your firm’s AML governance, update your risk assessments and policies, and train your team. If you’re compliant now, you’ll be in a strong position when the changes come.
The Enderley team is well placed to support you, whether in ensuring AML compliance now (through updating your FWRA and AML PCPs, training your team, or an independent audit) or in assisting you in the transition of AML compliance from your current regulator to the FCA. Our breadth of experience in the respective approaches of SRA and ICAEW regulation and FCA supervision, combined with expertise in financial crime, AML, and sanctions enable us to guide firms through the complexities of the transition with confidence.
The move to FCA supervision marks a significant step in the UK’s fight against financial crime and raises the bar for AML compliance across professional services. Firms that act early, supported by the expertise of specialists like Enderley, will not only mitigate risk but also demonstrate leadership in governance, risk management, and regulatory readiness.